With Saskatchewan, N.B. on board, Ottawa says national regulator soon a reality

OTTAWA – Finance Minister Joe Oliver welcomed the addition of Saskatchewan and New Brunswick to the federal drive to create a national securities regulator, setting up a timetable to have the new office in operation by the fall of 2015.

The addition brings to four — including original members Ontario and British Columbia — the number of provinces that have signed on to the project, although they represent about three quarters of Canadian listed companies with a market capitalization of 53 per cent of the total.

But Alberta and Quebec, two significant capital markets, remained outside the process and said they had not change their minds.

“Today is a landmark day … this is a day that Jim Flaherty would be very happy about,” Oliver said in a reference to his predecessor, who championed the initiative for eight mostly frustrating years.

Oliver said foreign governments had long looked upon Canada’s system of 13 separate provincial and territorial regulators with “bemusement” at a time of global financial markets. And from personal experience as a former investment banker and securities regulator, he said he too found the status quo unacceptable.

“The result has added cost, regulatory uncertainty, weakened enforcement capacity and an uneven oversight of systemic risk,” he explained.

Industry groups hailed the progress. The Investment Industry Association of Canada said the announcement “signals an end to the archaic and fragmented patchwork.”

John Manley of the Canadian Council of Chief Executives called it a major step forward and the Canadian Bankers Association called on other provinces to join in.

The announcement Wednesday leaves six provinces out of the scheme — with Alberta and Quebec representing key hold-outs given the size and scope of their economies.

Alberta Finance Minister Doug Horner said the new arrangement would leave the Canadian regulatory framework even more “fractured” and accused Ottawa of amending its original agreement to accommodate smaller provinces without informing him.

Horner said the new system would simply add another layer of bureaucracy.

Meanwhile, Quebec’s Intergovernmental Affairs Minister Jean-Marc Fournier noted the Supreme Court had already established provincial jurisdiction, but would wait to see the details of the new national body before deciding whether to launch a court action.

“It’s not a source of new political tension,” Fournier said. “It’s two different positions that continue to not be able to find common ground. We’ll see what they really want to do, for now we’re living in uncertainty over what they will table.”

Both provinces maintained a national regular was unnecessary because the current system is working just fine.

Still, Ian Russell of the Investment Industry Association said he believes it is only a matter of time before most other provinces join in, especially once the new office begins functioning.

“You suddenly are introducing a uniform securities act with detailed regulations … that will encompass at least 50 or 60 per cent of the Canadian capital markets,” Russell said.

“It will only be a short matter of time before most of the other provinces will come in because there’s too many efficiencies to gain by coming in and too much efficiency lost by staying out.”

Oliver and the ministers from the four provinces, who were present at the Wednesday announcement, also held out the olive branch to the hold-outs.

B.C. Finance Minister Michael De Jong urged them to “study the document.” He said it will demonstrate provincial jurisdiction and regional differences are respected.

But even if they don’t, the ministers said the initiative will go ahead and Canada will be better for it.

Under the current system, all 13 jurisdictions regulate their own capital markets and bond and securities issuances, although all except Ontario also belong to the so-called passport system by which the approval of one commission essentially allows for registration in another province.

Co-operation would also have to be built in once the new national regulator is in place, the ministers said, but the new approach has the advantage of including Ontario, the country’s largest capital market.

Ontario Finance Minister Charles Sousa conceded that unanimity would have been preferable, but added that it was the search for perfection that had thwarted efforts to create a national regulator for 50 years.

“Look at what it was, at how inefficient it was and how ineffective it was. Look at what it is now … that is encouraging, but look at it what it can be and that is the pull factor (to the other provinces) that this can be even better if we do this in a collaborative way.”

Although far from complete, it is as close as Ottawa has come to establishing a national regulator since the late Jim Flaherty took the issue on as almost a personal crusade shortly after taking office in 2006.

Initially, only Ontario supported the idea and several provinces mounted court proceedings.

In 2011, the Supreme Court sided with the provinces on the main question of jurisdiction, while leaving the door open to federal-provincial co-operation.

Last September, Ontario and British Columbia announced they had established a co-operative capital markets regulatory system and began work with Ottawa to develop complementary provincial and federal legislation governing capital markets.

Russell said a national or common regulator would do more than oversee stock markets. The office would also police debt markets and oversee institutional traders, high-frequency traders, new bond and equity issues and disclosure relationships between investment advisers and their clients.

“And for the first time we will have a regulator that will represent Canada internationally,” he pointed out.